1. Field of the Invention
This invention relates in general to an accounting system of a company which adopts absorption costing, and more particularly, to a system which receives accounting data from clients over computer information networks and makes new profit charts (break-even charts). Each of the new charts corresponds to an individual income statement for each manufacturing direct cost department of the company. The charts are presented to clients over computer information networks.
2. Discussion of Relevant Art
Generally speaking, if only the figures are looked at in income statements, this does not give a person a sensible comprehension for C(cost)-V(volume)-P(profit) relationships, but the relationships can be easily grasped by the same person when they are expressed as charts. In Japan, at the moment only income statements by absorption costing are allowed in published financial statements. In absorption costing, manufacturing overheads are allocated not only to goods sold but also to the inventories. It has caused a great deal of difficulty to get the C-V-P charts in absorption costing.
In 1958, A. W. Patrick presented a paper (Reference [2] in the section of Charting theory grounding the invention) on a break-even line under absorption costing in break-even chart. In this paper, notations were not used in his chart. In 1968, D. Solomons wrote a paper (Reference [5]). The intention of this paper was to present a profit chart in a developed form of A. W. Patrick's chart. Since it was not money amount but goods quantity that was adopted for theoretical treating for both sales and production in their papers, the applicability for practical accountings was not realized. Therefore, there are no profit chart theories applicable to practical accounting in absorption costing now existing in the world, except the managed gross profit chart theory presented in the prior Japanese laid open patent (Reference [1]) that was made by this applicant in 1997.
In Reference [1], an equation for the break-even sales in absorption costing was introduced. At that time, a comparison between the applicant's theory and Solomons' theory was not discussed. In the following application the equations of both the applicant and D. Solomons will be examined and discussed to show the differences and to explain why those differences exist.
With the increasing complexity in management activities of companies, a change from centralization to decentralization, namely a business division system has been seen in their management organization systems. Decentralization in a company means the transferring of both authority and responsibility from the head division to the other individual business divisions. Due to this, an intra-company transfer price system is prepared, and internal transactions are carried out among the business divisions.
Although the management accounting is carried out both in direct costing and absorption costing, direct costing has an advantage over absorption costing in management fields. The reason is that C-V-P relationships can be expressed as a C-V-P chart (marginal profit graph), and this chart is connected with profit planning. However, the applicant points out that the profit to be aimed at by a company's business division should not be the profit under direct costing but, if possible, under absorption costing. The reason for this is that companies always look for the profit in published financial statements. However, up till now management accounting profit charts in absorption costing in business division systems have not been utilized because of the defectiveness in the conventional charting theory for absorption costing.
If a company is considered that is an orders-received-business company and that adopts job order costing and a business division system, the management accounting system for such a company can be broken down into several management accounting departments per one company: (1) several manufacturing direct cost departments, that aim at controlling the manufacturing direct costs, (2) several manufacturing indirect cost departments, that aim at controlling the manufacturing overheads, (3) a department for selling and general administrative expenses, (4) the other departments composed of a non-operating expense department, an extraordinary profit and loss department, and an asset department excluding inventories, (5) a profit and loss summary department.
If there is a reasonable distribution on the expenses from the departments (2), (3), and (4) to the department (1), then all the expenses will be broken down to the separate units of the direct cost department (1). Hereinafter, “a business division system” means the management accounting system under absorption costing; the accounting is possible to get each income before taxes of each manufacturing direct cost department unit mentioned above without leaving the cost variances of the indirect cost departments.
To show a profit per each manufacturing direct cost department for whole amount of profit of a company is same as to completely break down whole costs (or expenses) of goods sold to the department. By the applicant's managed gross profit theory, charting an income statement in absorption costing is possible. However, in Reference [1], a charting theory for an operating income in an income statement per one company was presented, but the theory of how to break down the income into each income per each business division was not presented. For this reason, it has been desired, for the managed gross profit theory, to develop itself applicable to practical accountings.
In the world at the moment, people within companies increasingly utilize methods of sending electronic image pictures to company insiders or outsiders with personal computers through intranets or over the internet. However, from the theory background mentioned above, the business accounts have now no method of utilizing profit charts for income statements under absorption costing in spite of the needs of disclosure by image pictures.